August saw a return of market volatility amidst oscillating trade tensions. Investment markets saw a flight to safety towards traditional haven assets such as gold and government bonds. This was seen too amongst equities where consumer staples, real estate and utilities performed well at the expense of more cyclical and economically sensitive sectors such as financials and materials. The MSCI ACWI fell 2.3% while the strategy was down 1.0%. The outperformance of the strategy was largely due to a high allocation of consumer staples and also security selection within the healthcare sector.
CVS Healthcare was the strategy’s biggest contributor in August. The company had been amongst the worst performers held year to date prior to reporting a second set of quarterly results ahead of consensus. Market forecasts are now beginning to increase, factoring in some of the synergies the company expects from their merger with Aetna. New holdings Unilever and AstraZeneca continued to perform well with the latter continuing a run of successful late stage clinical trial results. The AstraZeneca position was added to.
Despite encouraging results from their Asian business, and confirming plans to separate out the UK operation, Prudential plc was the main disappointment. Shares fell close to 19% during the month. Much of this performance likely reflects the UK exposure of the company. The new British Prime Minister “proroguing” Parliament is regarded by most as an attempt to avoid Parliamentary debate that would look to prevent a no-deal Brexit. This investment is now under review.
The Philip Morris International position, reduced last month, also performed badly and was sold. A proposed merger with former parent company Altria was leaked and confirmed by the firm. Our view of industry headwinds and the relative value split of a new company was unfavourable.
Central banks are reportedly poised to provide interest rate cuts that ought to counter recessionary risks. Irrespective of the efficacy of these actions we continue to believe that investing in high quality companies, offering growth at a reasonable price, will provide good long term returns.